Transcript LO1: Understand the relevance of economics LO2 - McGraw-Hill

CHAPTER 1
The Economic Problem
Learning Objectives:
LO1: Understand the relevance of economics
LO2: Define economics, microeconomics, and
macroeconomics and understand the importance of
the scientific method
LO3: Realize that scarcity, choice, and opportunity cost
are at the heart of economics and that efficiency is a
cornerstone
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LO2
What is Economics?
Positive Statement
– Can be verified with empirical data
Normative Statement
– Based on a person’s beliefs or value system
– Cannot be verified with data
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LO2
Self-Test
Identify each of the following statements as either
positive (P) or normative (N)
a. The federal government’s budget this year is
the largest in history.
b. The national debt is at a manageable level
and therefore is nothing to worry about.
c. The price of gasoline is higher than it needs
to be.
d. Rising Canadian exports are creating many
new jobs in the country.
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LO2
What is Economics?
Economic Theory
– Looks at how positive statements are related
– Uses the scientific method:
• Set up a hypothesis
• Define terms, state assumptions
• Gather data to test hypothesis
• Accept, reject, or modify theory
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LO2
What is Economics?
Macroeconomics
– How the major components of an economy interact
– Unemployment, inflation, interest rates
Microeconomics
– Outcomes of decisions by people and firms
– Supply and demand, costs of production, market
structures
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LO2
Self-Test
Identify which of the following topics would likely appear
in a microeconomics course and which in a
macroeconomics course.
a.
b.
c.
d.
The price of iPods
Unemployment rates
The presence of monopolies
The rate of economic growth
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